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What was the Gold Standard Act of 1900? What effect has it had on American monetary policy?

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1900 March 14

Gold Standard Act, 1900: "An Act To define and fix the standard of value, to maintain the parity of all forms of money issued or coined by the United States, to refund the public debt, and for other purposes." United States notes became redeemable for gold at the historical rate of $20.67 per ounce. While the statute continued to allow for the use of silver coinage and urged an international agreement on bimetallism, this Act secured the primacy of gold in United States’ monetary policy.

The Gold Standard Act of 1900, signed by President McKinley on 14 March 1900, ended the debate over the primacy of gold versus silver and over what metal to peg (to tie) United States paper currency to: silver or gold. The debates over federal use of paper currency and the relative usefulness of silver or gold in supplying the specie value of paper currency dated back to 1790 when Madison and Hamilton debated the issues in relation to establishing the First Bank as a national bank with currency regulatory power. The effect of the Act is that it establishes (1) a national value for gold, (2) a standard unit of value for the U.S. dollar in relation to gold, and (3) a requirement that the dollar be kept at parity with (parity: a similar equivalence between different forms of the same currency) this defined standard unit of value:

  • Standard unit of value for the dollar: "the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine ... shall be the standard unit of value"
  • Resultant value of gold: $20.67
  • Dollar at "la parity": "all forms of money issued or coined by the United States shall be maintained at la parity of value with this standard"

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at la parity of value with this standard, and it shall be the duty of the secretary of the Treasury to maintain such parity

Gold and silver have historically been the metals used as monetary standard throughout time and across nations. When gold and silver are both used, this is called bimetallism. When payment is made in gold or silver, this is called specie payment. Gold and silver, when forming the basis of a monetary standard are "specie." When paper currency is backed by bimetallism (gold and silver) or by either gold or silver, payments are said to be "specie backed" since the paper currency can be exchanged for an equivalent value in gold or silver. Though gold and silver have historically formed the monetary standard, there has been an accompanying debate over the primacy of gold or silver, over which metal should be preferred as the monetary standard. When paper currency is introduced into a country's monetary system, as during financial crisis or during times of war when the country's treasury was low or depleted, the monetary system becomes more complicated because paper currency usually promises to pay in specie upon presentation of the paper currency for exchange (paper currency presented for exchange for gold of silver). To avoid the complication of demands for gold or silver from the treasury when the treasury is depleted, governments often suspend the rights of exchange. The United States Civil War presented one of these complicating times when right of specie payment was suspended.

After the Civil War, the debate about whether the country should have species-based paper currency was renewed with the high point coming during speech at the Democratic Convention given by presidential candidate William Jennings Bryan. In his "Cross of Gold" speech Bryan spoke vigorously against gold as the monetary standard and for silver as the metal to back the monetary standard. In a

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